Mutual Fund Voting on Environmental and Social Proposals

Abstract

Over the 2004 – 2016 period there have been over 1,600 shareholder proposals related to environmental and social (ES) issues, with slightly more than half sponsored by asset management companies. In recent years, ISS has supported about 60% of these proposals, yet support among mutual funds is less than 20%. Funds’ focus on factors other than long-term value maximization contribute to this difference. Mutual funds that are less myopic and that are less influenced by management recommendations are more likely to vote for ES proposals, especially those sponsored by asset management companies. Despite apparent biases within some funds, overall mutual fund support is informative regarding ES risks. Consistent with virtually none of these proposals passing and managers not voluntarily adopting the initiatives, higher mutual fund support for ES proposals predicts deterioration in ES scores and extreme negative returns over the following years.

Keywords: shareholder proposals, voting, mutual funds, environmental, social